Undercover Battle Threatens U.S. Nonprofit Organizations - Many Remain Unaware
=========================================================================
In an era of politicized audits and online disinformation, transparency is armor for nonprofits, making it harder for bad actors to distort their mission and easier for allies to defend it. However, the return of President Trump in 2025 has had a significant and largely negative impact on the nonprofit economy in the United States.
The first blow came with the freeze on all new and pending federal grants on January 23, 2025, affecting various sectors including education, public health, the EPA, and foreign aid. This move was legally challenged and paused by courts, but caused immediate disruptions and uncertainty for many nonprofits relying on government support to sustain operations.
Cuts and freezes on federal grants and loans were not the only fiscal pressures faced by nonprofits. A major tax bill heading through Congress under Trump’s return includes both positive and negative provisions. While it creates a universal charitable deduction expected to raise approximately $74 billion over 10 years for nonprofits, it also includes provisions that disincentivize charitable contributions from individuals and corporations, projected to reduce nonprofit resources by at least $81 billion in the same period.
Policy targets on Diversity, Equity & Inclusion (DEI) efforts and large foundations were another area of concern. Executive orders by the Trump administration have threatened organizations that focus on historically marginalized communities, creating an existential threat for nonprofits filling crucial labor and service gaps.
Cuts in foreign aid and international development funding were also a significant blow to the nonprofit sector. Trump's administration has frozen US foreign aid funds, forcing emergency fundraising campaigns to support organizations impacted by these cuts.
Challenges to federal nonprofit partnerships and tax-exempt status were another area of concern. There have been aggressive moves to challenge the tax-exempt status of some high-profile nonprofits and attempts to interfere with federally funded nonprofit programs like AmeriCorps.
The financial strain on nonprofits has been evident. Reports from foundation studies, such as in affluent regions like Orange County, California, show that nonprofits have faced dramatic budget cuts of 40-50%, with huge unmet needs relative to available funding. Thousands of applications for grants vastly outnumber the pool of available funds, signaling deep financial strain across sectors including poverty support, arts, civil rights, and animal welfare.
Despite these challenges, nonprofits must invest in institutional power by strengthening boards, growing policy capacity, upgrading tech, and training future leaders. They must function as storytellers, truth-tellers, and public advocates to maintain public trust. Nonprofits must also build insulation from political volatility by cultivating unrestricted gifts, long-term philanthropic partners, earned income, and community-aligned donors.
Examples of the impact can be seen in Connecticut, where the Meriden Boys & Girls Club had to cut afterschool transportation for 180 students due to funding shortages. Research and workforce training programs have been halted at various universities and community colleges due to lost federal funding. The Fulbright Program canceled over 600 international exchanges.
La Clínica del Pueblo, a lifeline for immigrant and uninsured communities in D.C., lost Title X and Ryan White HIV-prevention grants. The American Red Cross announced it would scale back regional emergency response teams due to a $120 million shortfall tied to rescinded FEMA reimbursements.
However, not all news has been negative. Bill Gates, Charles Koch, and three other billionaires have pledged $1 billion toward economic mobility programs. The Emerson Collective, Tides Foundation, MacArthur, Surdwood, Open Society, and Robert Wood Johnson have reported historic spikes in emergency requests from nonprofits in crisis.
As the future unfolds, nonprofits must adapt and evolve to meet the challenges posed by a changing political landscape. They must continue to serve their communities, despite the fiscal pressures and regulatory challenges they face.
- The freeze on federal grants and cuts in public funding, coupled with the potential disincentives for charitable contributions from the 2025 tax bill, pose a significant funding risk for various sectors of the nonprofit industry, such as education, public health, and arts.
- Changes in nonprofit policy, including threats to organizations that focus on historically marginalized communities and challenges to federally funded nonprofit programs, exert pressure on the nonprofit sector's business model and civic infrastructure, potentially leading to a collapse.
- As the nonprofit sector faces a funding crisis, with many organizations experiencing dramatic budget cuts and huge unmet needs, they must diversify their funding sources by growing philanthropic partnerships, increasing earned income, and seeking community-aligned donors, while simultaneously building insulation from political volatility.
